India’s rupee plunges most in 20 years to record low

Oil, Economy

The nation’s petroleum imports averaged $14.2 billion in the first seven months, compared with $13.9 billion a year earlier, official data show. The government will devise by mid- September a plan to cut energy imports, Oil Minister Veerappa Moily said in New Delhi today.

India’s gross domestic product probably rose 4.6% in the three months ended June 30, the least since the first quarter of 2009, according to the median of 41 estimates in a Bloomberg survey before official data due Aug. 30. BNP Paribas today cut its growth forecast for India for this fiscal year to 3.7% from 5.2%, after the Reserve Bank of India engineered a cash crunch last month to shore up the rupee. That would be the slowest pace since 1992.

Indian stocks may extend this year’s declines because of the nation’s external deficits and the capital flight from emerging markets, according to Goldman Sachs Group Inc.

Rising Risk

“We are not yet prepared to say we have hit the lows and therefore it’s time to go and turn more positive” on Indian shares, Timothy Moe, Chief Asia Pacific Equity Strategist at Goldman Sachs, said in an interview with Bloomberg TV India.

One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, jumped 491 basis points to 22.24%, the highest since January 2009.

Credit-default swaps insuring the debt of State Bank of India, considered a proxy for the sovereign, against non-payment climbed 111 basis points this month to 371 as of Aug. 27, CMA prices show. The contracts jumped 64 basis points last quarter, the most since the three months to Sept. 30, 2011.

Three-month onshore rupee forwards fell 3.3% to 69.76 per dollar, data compiled by Bloomberg show. Offshore non- deliverable contracts dropped 3.6% to 70.42. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.

Since the start of July, Indian policy makers have curbed trading in foreign-exchange derivatives, restricted cash supply and asked foreign investors to prove they aren’t speculating on the rupee, in an attempt to arrest the currency’s slide.

“Quite clearly, there is panic in the market which is exacerbated by the fact that the measures invoked so far have delivered limited results,” Madan Sabnavis and Anuja Jaripatke, economists at Credit Analysis & Research Ltd. in Mumbai, wrote in a report today. “The Fed meeting in September will provide more clarity on currencies, and till then it is unlikely that the rupee will stabilize.”

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